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Finance executives show increasing optimism about their companies

U.S. finance executives’ optimism about the domestic economy cooled
in the past three months, but they were more bullish about the
near-term prospects of their own businesses.

CPA decision-makers are increasingly positive about their own
businesses’ revenue and profit, especially when compared with a year
ago. That sunny view offsets a slide in the retail sector and
lingering concerns about regulatory requirements and gridlock in
Washington in the fourth-quarter AICPA Business & Industry
Economic Outlook Survey, released Thursday.

The survey took the responses of 1,118 finance professionals across
industries, gauging their outlook in nine areas: U.S. economic
optimism, organization optimism, expansion plans, revenue, profits,
employment, IT spending, training and development, and other capital
spending.

Those nine indicators make up the CPA Outlook Index (CPAOI), which
matched a post-recession high of 69 for the third consecutive quarter.

That’s despite a lower opinion of the U.S. economy, compared with the
previous quarter. Domestic economic optimism was at 56. While that is
down six points from the third quarter, it’s up 20 points from the
previous year, when uncertainty about the “fiscal cliff” drove
domestic optimism to its lowest level in the past two years.

Organization optimism is up 12 points compared to the previous year,
and the other measures in the index are up at least seven points since
then. With the exception of U.S. economic sentiment, all the measures
rose slightly or remained the same as the previous quarter.

Expectations for revenue and profit have risen four quarters in a
row. Respondents project revenue to increase 3.6% and profit 2.7% in
the next 12 months. They also project staffing to increase 1.2%, a
slight drop from the previous quarter (1.3%) but well above the 0.5%
projection at the end of 2012.

“There is a lot of good news in these survey results about business
executives’ growing confidence in conditions, from profit expectations
to plans for investment in training and technology,” Arleen Thomas,
CPA, CGMA, the AICPA’s senior vice president of management accounting
and global markets, said in a news release. “But it’s clear that
uncertainty on the economy continues to play a major factor in hiring plans.”

Fifty-seven percent of respondents are optimistic about their own
companies, up from 41% a year ago and 55% the previous quarter. Yet
companies are only slightly more likely to hire than a year ago. Ten
percent said they had too many employees, down from 12% in the fourth
quarter of 2012, and 19% said they had too few employees but were
reluctant to add staff. That number has held steady the past three
quarters. Additionally, 13% said they had too few employees and
planned to hire, up from 8% a year ago but down from 15% the previous quarter.

For those planning to hire, 72% say they are looking to primarily add
full-time workers.

Optimists cite improvements in consumer spending and housing and
construction as the most significant factors influencing their
decision. “The challenges of political leadership, regulation and
health care reform were cited as the most significant factors by those
with a neutral or pessimistic view,” the survey said.

Dip in retail forecast

Retail optimism suffered the biggest quarter-to-quarter drop: 52% of
respondents in that sector were optimistic, compared with 62% three
months ago. However, that’s up from 36% who expressed optimism 12
months ago.

Retail hiring expectations also fell, from 1.8% last quarter to 1.3%.
Only the healthcare sector predicts a lower increase in staffing.

The technology sector rose 13 percentage points from the previous
quarter and is up 29 points from a year ago. Optimism is up
year-over-year in all sectors but “health care other,” which is
separate from “health care provider.”

Other key findings in the survey:

Projections for spending on IT, training or other capital projects
continued a year-over-year rise. Respondents predict a 2.9% increase
in IT spending in the next 12 months, a 2.1% increase for other
capital and 1.5% for training.

Regulatory requirements and changes remained the top challenge for
the third consecutive quarter. It was followed by employee and
benefits costs (third last quarter, fourth a year ago), and domestic
economic conditions (second last quarter, top concern a year ago).

Few respondents suffered as a result of the recent shutdown of the
federal government. Just 4% experienced significant impact, 35%
experienced some impact, and 61% said they experienced no impact
from the shutdown.

Respondents have low expectations for Congress’s ability to
negotiate a budget by the December 13 deadline: 85% said they were
not confident, 14% were somewhat confident and 1% were very confident.

The CPAOI

Each component of the CPAOI is calculated by taking the percentage of
respondents who indicated that their opinion or expectation for the
metric is positive or increasing, and adding to that half of the
percentage of respondents indicating a neutral or no-change response.
A reading above 50 indicates a generally positive outlook with
increasing activity. A reading below 50 indicates a generally negative
outlook with decreasing activity.

For example, if 60% of respondents indicate an optimistic or very
optimistic view, and 20% express a neutral view, the calculation of
the component indicator would be 70 (60% + [0.5 × 20%]).

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